Supply Chain Constraints and Inflation

Diego Comin, Robert Johnson and Callum Jones

No 2023-075, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We develop a multisector, open economy, New Keynesian framework to evaluate how potentially binding capacity constraints, and shocks to them, shape inflation. We show that binding constraints for domestic and foreign producers shift domestic and import price Phillips Curves up, similar to reduced-form markup shocks. Further, data on prices and quantities together identify whether constraints bind due to increased demand or reductions in capacity. Applying the model to interpret recent US data, we find that binding constraints explain half of the increase in inflation during 2021-2022. In particular, tight capacity served to amplify the impact of loose monetary policy in 2021, fueling the inflation takeoff.

Keywords: Monetary policy; Goods constraints; Import constraint; Inflation; Occasionally binding constraint; Supply chain constraints (search for similar items in EconPapers)
JEL-codes: E30 E50 (search for similar items in EconPapers)
Pages: 82 p.
Date: 2023-11-22
New Economics Papers: this item is included in nep-cba, nep-int and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://www.federalreserve.gov/econres/feds/files/2023075pap.pdf (application/pdf)

Related works:
Working Paper: Supply Chain Constraints and Inflation (2023)
Working Paper: Supply Chain Constraints and Inflation (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2023-75

DOI: 10.17016/FEDS.2023.075

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